In the fall of 2017, the Consumer Financial Protection Bureau (CFPB) issued new rules to protect payday loan customers from some of the most harmful practices in that industry. These loans, usually paid back in one payment on the borrower’s next payday, carry extremely high interest rates and borrowers can easily become trapped in an endless cycle of re-borrowing to keep afloat. The basic, common-sense protections in the CFPB rule included requiring lenders to verify a customer’s ability to repay the loan before extending credit, and not repeatedly trying to draw payment from a customer’s bank account (and racking up overdraft charges for the customer in the process). But now the same federal agency that issued the rule has announced plans to scrap important provisions of it, leaving many consumers unprotected.
What’s going on at the CFPB?
The Consumer Financial Protection Bureau, or CFPB, was created in 2011 with the mission of protecting consumers from harmful and unfair practices in the financial industry. The payday loan rule was developed and issued during Richard Cordray’s directorship of the agency. However, Cordray stepped down as director just one month after the rule was issued and White House budget director Mick Mulvaney was named the acting director. Mulvaney announced very quickly that the rule would be reconsidered, and last month the agency, now headed by Kathleen Kraninger, followed up on this promise with a proposal to roll back the rule.
And that’s unfortunate. The payday rule issued in 2017 was a promising first step toward protecting consumers from becoming trapped in endless cycles of high-interest loans. Prior to issuing the rule, the CFPB (under Director Cordray) conducted five years of research, data collection, and public hearings, and reviewed more than one million public comments on the proposal. The rule was based on sound research and evidence, and no new evidence has emerged since the rule was issued that would warrant its reconsideration.
This rule was especially important for Oklahomans
In 2017, the same year the rule was issued, Oklahomans took out nearly 900,000 payday loans and incurred nearly $50 million in fees on those loans. The average payday loan customer in the state takes out 6 payday loans a year, and we lead the nation in the rate of payday borrowing. These loans are not serving as a source of occasional credit to cover an emergency for most borrowers – they are being used by the most financially-strapped Oklahomans who have little or no access to traditional credit. These borrowers then become trapped in a cycle of high-cost debt (the average interest rate on payday loans in Oklahoma is nearly 400 percent), taking out new loans to pay down previous loans. Requiring lenders to check a customer’s ability to repay the loan while still meeting other necessary expenses (as this rule would do) would help to end this payday debt-trap and bring desperately needed relief to Oklahomans struggling to make ends meet.
What you can do
The good news is that this proposal to roll back the payday rule is still just a proposal. Before this proposal can be finalized, the agency must first allow for public comments, and you can easily submit one. Click here and share your comment.
If you have personal experience with payday loans, or any other story about the payday loan industry and how it has affected you or someone you know, please share that as well. Public comments can make a difference, and it’s important that the CFPB hear from you on this issue. Because payday lenders operate under a permissive set of rules in Oklahoma, these federal protections could be the only protections that Oklahomans have against the worst abuses of the payday loan industry. The deadline to submit a comment is May 15th.